My, how drastically one's sentiment can change in a year's time

As evidenced by this snarky blog, there is no doubt that about a year ago I was solid in my stance as a "Multicoinist". Multicoinism is a school of thought within cryptocurrency circles in which people tend to believe there will be more than a few valuable cryptocurrencies that people use seamlessly in an interoperable manner. You can learn more about Multicoinism by reviewing the antagonistic rhetoric on my other website www.BitcoinMaximalism.com. Although I still believe there will be more than one valuable cryptocurrency, my beliefs in Multicoinism have started to wane over the course of the past year. I'd like to review the above-linked snark-filled blog and explain what I think I got wrong, and further dive into the reasoning behind my change of heart.

"A sidechain is a pegged token that runs autonomously on top of the Bitcoin blockchain, which is secured by merged mining incentives for Bitcoin's miners."

Throughout the blog post, I made multiple references to sidechains being merge-mined by Bitcoin miners as being a negative economic factor to the sidechain ecosystem. The theory was that because miners would need to be sufficiently rewarded in order to secure the sidechain via merge mining that it was likely an alternative cryptocurrency using some version of PoS would be able to outperform sidechains by providing the same service cheaper with a similar risk profile (like PoS, merge-mined sidechains suffer from some security and censorship-resistance tradeoffs). However, this theory stemmed mainly from me not being creative enough in the possibilities of sidechain engineering. I even alluded to the possibility of making more efficient sidechains at the end of the blog, but throughout the rhetoric, I seemingly ignored the possibility of their existence!

"However, there is a way that sidechains can better compete with alternative cryptocurrencies. It would still not amount to certain victory, but at least the battle wouldn't be so lopsided. That is not how Sidechains will initially come to fruition though, and so for now... they will compete with the aforementioned economic inefficiencies. I will save that topic for another day though..."

I should have had more foresight on this aspect considering The Lightning Network was right on the horizon, and I even talked about the LN in the blog post a little bit, along with alluding to the possibilities of making more cost-efficient sidechains, but what really made me have the change of heart was the creation of Blockstream's Liquid sidechain. Alas, this was the missing link... sidechains do not necessarily have to be secured via merge-mining, and therefore the economic leeches (miners) on the sidechain ecosystem can be deleted from the equation. Since sidechains and extra layers like the LN and Liquid settle to Bitcoin's main net (which is still secured by massive amounts of work and electricity,) their security profiles still benefit from the resiliency of PoW, but the added security costs of these types of layers/sidechains can almost be eliminated by eliminating merge mining.

"Although services like Changelly already swap tokens to other tokens seemingly automatically, soon Atomic Swaps and Lightning Networks will make such an act much more secure and efficient (read: cheap). Once intra-blockchain commerce can be securely and cheaply in an autonomous manner, then all the sudden sidechains have to compete with them."

I vastly overestimated the pace at which blockchains would be made interoperable. It is still unclear as to how easy, secure, and efficient such trustless intra-blockchain commerce will be. Today I have a better understanding of just how challenging it is in both an engineering and UI/UX sense to make a trustless and seamless interoperable network. Now that I realize that Bitcoin's sidechains do not necessarily have to be merge mined, I'm not sure if intra-blockchain commerce can be as efficient or frictionless as inter-blockchain commerce between the main net, extra layers, and sidechains. The jury is still out on this because trustless intra-blockchain commerce is still a ways off, but I must say that I can't help but be more skeptical about Multicoinism than I was a year ago considering how Bitcoin's sidechain and layer ecosystem has evolved greatly in only a year.

Yet, I wasn't completely off base and still think there was some good analysis within the original blog. Mainly the macroeconomic game theory aspects of it... which I've spent much more time researching, debating, and pondering, and I've always considered that aspect of my analysis skills to be one of my strongest analytical strengths. For instance, I still agree with the underlying premise of my argument that in the endgame it is all about who can provide better and cheaper services:

"Although the competitions will consist of multiple sub-competitions (security, fungibility, utility, reputation, network effect, etcetera), I think the most important competition of all will ultimately be the end user economic impacts of the feuding solutions. Companies, startups, and smart contracts will not likely pick sides because it will be dumb for them to do so, alienate part of the overall cryptocurrency community, and leave money on the table. Therefore, it ultimately comes down to which solution can provide a service that is of a sufficient amount of quality for the lowest cost to the end users. If an alternative cryptocurrency can perform the same service a sidechain can for cheaper, then much to the Bitcoin Maximalists' dismay, most people will (at least eventually) choose the alternative cryptocurrency over the sidechain."

I'd add governance to the above list of sub-competitions because that has become a big talking point over the course of the past year. I think the paragraph that talks about how most people will be quicker to make their own token in order to profit off of their work than to work for free on the speculation that they may make profits in the future. So far this has proven to be true for most of Bitcoin's existence. Alas, I'm not going to repeat myself word for word because I think I did a good job of explaining it in my original blog post:

"I have supported honest alternative cryptocurrencies over the years because that is where most of the experimenting (and innovating) was... and still is... occurring. Even with more sidechains coming into existence, I don't really expect that to change either. The reason why the experimenting and innovation won't transition from alternative cryptocurrencies to sidechains is simple really. It is impossible to create value from a pegged sidechain token itself because they are created by putting Bitcoins in a multi-signature address and receiving the same amount of value on the sidechain. Since there is no way to profit off of the token itself, profit will be generated primarily be leveraging transaction fees and offering other services- such as offering oracles and 2nd layer technology. You need a majority of Bitcoin miners to secure it (while receiving their cut of the transaction fees too), and good services that will generate a lot of fees. I'm doubtful that many people will be so completely sure of the success of their experimental innovation to spend the man hours (of course, time is money) it takes to build an extremely complicated sidechain based simply an expectation of earning a percentage of the transaction fees. Fees of which a cut has to be taken out for the miners to secure it anyways... effectively diluting an already small piece of the pie. Why would they put themselves through such experimental uncertainty when they can make a quick penny from creating a new token?"

I think my ending thoughts concerning Bitcoin being the most likely store of value due to its powerful Network effect, and sidechains not being an ALT coin killer, was mostly correct... but for the wrong reasons. As described above, humans are inherently greedy and will be looking to make a profit for as long as we exist. The temptation to print money by creating your token is simply too great for Bitcoin's extra layers and sidechains to kill the existence of pump and dumps. The best pump and dump scam coins are the ones that most people have trouble telling are actually pump and dump scam coins. They will be obvious over the course of a decade or so, and you can see a few examples by looking at the historical snapshots from 2012 on coinmarketcap.com, and then researching the public sentiment of each on social media and the popular public forums of the time like bitcointalk.org. Although varying ever so slightly over the course of each iteration, history tends to repeat itself because we as humans are notoriously bad at studying and learning from history. This new crop of alternative cryptocurrencies is surely different though! The "next Bitcoin" for sure. Such innovation! Oh my...

Originally posted on my website www.decentralized.tech